VALUATION OF MIXED-USE DEVELOPMENT SITES WITH THE AID OF LINEAR PROGRAMMING

Abstract

Mixed-use developments have arisen out of a need to optimize the use of scarce land resources and to capitalize on the synergy between complementing land uses for higher efficiency or profits. Mixed-use developments sites can allow a variety of land uses and a developer has to choose the ideal combination of uses, in specific amounts of floor area, to maximize the site’s potential. Thus a highest and best use or highest and best mix of uses must be found in order to reap the maximum return. This is made more complex due to the possible effects of synergy between the uses within the development. As mixed-use developments begin to grow in number and turn more sophisticated, it is becoming increasingly important to provide a scientifically supported estimate of their value. However, established methods of valuation, on their own, cannot provide such a value as the highest and best use for a mixed-use development site cannot be ascertained. This study attempts to use linear programming to determine the highest and best use for a mixed-use development site (the Marina View ‘white’ site) before valuing the site via the Residual method. According to the results of the linear programming model, the Marina View ‘white’ site should be put to a mixed-use development of residential (5,000m2), retail (32,917m2) and office (93,184m2). This combination of uses results in a maximum return of S$3,826,206,838. Using the Residual method, the value of the Marina View site is estimated at S$1,802,000,000.